What happens to your business if you die – planning ahead as a sole trader

It’s not the cheeriest subject, but it’s one every self-employed person should think about: what happens to your business if something happens to you?

Unlike a limited company, where the business is a separate legal entity, a sole trader and their business are legally the same.

This means your sole tradership cannot simply carry on unchanged after your death. Your business assets, money owed to you, and any debts become part of your estate, and someone will need to deal with clients, accounts, and anything else you have left unfinished.

This guide explains what typically happens when a sole trader dies, and what you can do now to make things easier for the people left behind.

Your business and your estate are closely linked

Because your business income and assets are legally yours, they become part of your estate when you die. That includes:

• Business bank account balances
• Outstanding invoices or payments owed to you
• Work in progress or orders not yet fulfilled
• Equipment, tools and stock
• Your website, domain names and other digital assets
• Goodwill and other value attached to the business

The same applies to business debts and liabilities. These might include tax bills, supplier invoices, loans, leases or refunds due to customers.

These debts are normally settled from the estate. Your family does not automatically become personally responsible for them simply because they are related to you, although joint debts and personal guarantees can be different.

If the estate cannot pay everything it owes, your executor should take professional advice before paying creditors.

If you’re in a partnership, different rules apply. Under general partnership rules, a partner’s death can dissolve the partnership unless the partnership agreement says otherwise. See our guide to setting up a business partnership.

Your executor deals with your business affairs

If you have a will, the person you’ve named as executor will be responsible for dealing with your estate, including your business affairs.

That may involve collecting money owed to you, paying suppliers, contacting clients, cancelling services, completing or handing over work and selling business assets.

An executor named in a will has legal authority from the will, although banks and other organisations will often want to see a grant of probate before releasing significant assets.

If you don’t have a will, the process is usually more cumbersome. The rules of intestacy decide who inherits your estate, and somebody will normally need to apply for legal authority to administer it.

Small estates do not always require probate, as individual banks and other organisations have their own limits and procedures.

You can read more at GOV.UK: Wills, probate and inheritance.

Terminology and the probate process differ in Scotland and Northern Ireland, so check the relevant rules if you live outside England and Wales.

What happens to your business bank account?

If you use a separate business bank account – which is generally a good idea – the bank will normally restrict or freeze it once it is told that you have died.

This protects the money while your estate is being administered.

The executor may need to provide the death certificate and, depending on the balance and the bank’s own procedures, a grant of probate before the funds can be released.

This matters because standing orders and other payments may stop while the account is frozen.

Keep a separate note of your business bank account details and the right contact information somewhere your executor can find it.

Don’t put passwords or sensitive account credentials in your will itself. Once probate is granted, a will can become a public document.

HMRC and your final tax affairs

HMRC will also need to be dealt with after your death.

Your executor or other personal representative will normally be responsible for making sure your final tax affairs are sorted out. This may include:

• Completing a final Self Assessment return
• Paying tax due up to the date of death
• Dealing with outstanding VAT if you were VAT registered
• Dealing with PAYE if you employed staff
• Telling HMRC that the trade has ceased

Tax debts are normally paid from the estate rather than becoming a personal debt of the executor, provided the estate is administered correctly.

The government’s Tell Us Once service can notify a number of government organisations after someone dies, but it does not cover every business or tax matter.

Your accountant or bookkeeper can be invaluable here, particularly if they already have access to your records.

For official guidance, see what to do when someone dies on GOV.UK.

What about Inheritance Tax?

Business assets form part of your estate for Inheritance Tax purposes, but some may qualify for Business Relief.

Whether relief is available depends on the type of business and the assets involved, and the rules have changed over time.

Cash held by the business, investment assets and the trading business itself can also be treated differently, so this is one area where it makes sense to speak to an accountant or solicitor rather than assume that everything connected with the business receives the same tax treatment.

Can the business itself be passed on?

There is an important distinction here.

The sole proprietorship itself does not survive you because, legally, you and the business are the same person.

But that does not mean everything connected with the business disappears.

Your estate may still own valuable assets such as:

• Stock and equipment
• A trading name or brand
• A website and domain names
• Phone numbers
• Customer relationships and goodwill
• Intellectual property
• Work in progress

Your executor may be able to sell some or all of these assets to another person or business.

In some circumstances, personal representatives may also continue trading for a short period while they complete work, realise value or arrange a sale. This can create additional legal and financial responsibilities, though, so professional advice may be needed.

A spouse, family member, or colleague could also decide to carry on the same type of work themselves, but they would normally trade in their own name or through their own business.

If you have somebody in mind to take over, discuss this with your solicitor and make your wishes clear.

What happens to existing customers and contracts?

This depends heavily on the type of business you run.

If customers have paid deposits or paid in advance for work which has not been completed, your executor may need to arrange refunds or agree what should happen next.

Some contracts may end when you die, particularly where a client hired you personally because of your skills or qualifications.

There may also be:

• Client records and confidential information to protect
• Professional licences or memberships to deal with
• Leases or hire agreements to terminate
• Insurance companies to notify
• Customer files that need to be returned or transferred

Leaving a simple list of current clients and unfinished jobs can make this considerably easier.

Don’t forget your digital business assets

For many sole traders, some of the most valuable parts of the business are now online.

Your family may need access to:

• Your website and hosting account
• Domain names
• Business email
• Accounting software
• Social media accounts
• Online marketplaces
• Cloud storage
• Payment platforms

Don’t simply write all your passwords on a piece of paper and put it with your will.

A better approach is to leave clear instructions explaining which accounts exist and how the appropriate person can access them. A password manager with a suitable emergency access arrangement may also help.

Where services allow it, giving your accountant or another trusted person their own authorised access is usually better than sharing your login details.

Make a simple business continuity document

You don’t need to write a formal “death plan”.

But a short document explaining how your business works could save your family a lot of trouble.

Include things such as:

• Clients and key contact details
• Outstanding jobs, contracts and invoices
• Supplier details
• Bank and accounting information
• Your accountant or bookkeeper’s details
• Website, domain and software providers
• Any employees or regular subcontractors
• Insurance policies
• Important contracts and leases
• Where important records are stored

Keep this separate from your will and update it every so often.

Even one page explaining where everything is can be far more useful than leaving somebody to work it out from your laptop after you’ve gone.

What if you’re alive but unable to run the business?

Death isn’t the only situation worth planning for.

An accident, serious illness or loss of mental capacity could leave you unable to deal with customers, banking or bills while the business is still running.

A Property and Financial Affairs Lasting Power of Attorney can allow somebody you trust to deal with financial matters on your behalf if necessary.

For a sole trader, that can be particularly important because there is no fellow director who can simply step in and run things.

You can also appoint different attorneys to deal with personal and business matters if that suits your circumstances.

Read the GOV.UK guidance on Lasting Powers of Attorney.

Is insurance enough protection?

Life insurance can provide money for your family or help cover debts after you die, but it doesn’t handle the practical work of sorting out the business.

Likewise, income protection and critical illness cover are intended primarily to help while you’re alive.

The right cover depends on your circumstances, your debts, and whether anyone else depends on the income you generate.

For more information, see what insurance do self-employed people need?.

Five things worth doing now

You don’t need an elaborate succession plan for a small sole trader business.

But it is worth making sure that:

• You have an up-to-date will and your executor knows that you run a business.
• You have considered a Lasting Power of Attorney in case you lose the ability to manage the business yourself.
• Your business records are organised, including clients, unpaid invoices and current work.
• Someone can identify your important digital accounts without passwords being written into your will.
• Your accountant, solicitor and insurance details are easy to find.

For most sole traders, that’s enough to make a difficult situation considerably easier for the people who have to deal with it.